Dear Mr. Berko: I was able to buy 100 shares of Axovant Sciences at the $15 initial public offering price. I wanted 1,000 shares because my broker was told by a good source that the company’s drug will be a cure for dementia. I couldn’t get 1,000 shares at the IPO price, but at my broker’s insistence, I bought 900 more shares at $29 at the end of the day it came public. It has since crashed to $19, but my broker is even more bullish and has advised me to lower my cost per share and purchase another 1,000 shares. I usually don’t buy or chase issues like this. In fact, I never have. But my broker insists that Axovant Sciences’ RVT-101 is the holy grail that will cure Alzheimer’s disease and other types of dementia. What can you tell me about this, and what is your recommendation? Please hurry, because I must make a decision as soon as possible.
— JS, Syracuse, N.Y.
Dear JS: In the three weeks since your email, Axovant Sciences has crashed to $11. So make yourself a pot of delightful and smoky gunpowder tea. Sip it slowly, and allow it to relax you. Then call that brokster and wish him luck. If he has similarly conned his other clients, he’s going to need as much as he can get, because I think some of them will have his guts for garters. Then move your account to another brokerage, where you will sell those 1,000 shares and take a loss. You may have learned a good lesson of how Wall Street can make a silk purse from a sow’s ear.
One of the latest faux miracles in the biotech universe is Bermuda-based Axovant Sciences (AXON-$11). AXON is a clinical-stage biopharmaceutical company that came public with 21 million common shares at $15 in June and then, without a pause to refresh, leaped quickly to $31. Jefferies LLC, Evercore Group and RBC Capital Markets took this trash public with an option to purchase 3.1 million shares for their personal accounts at $15.
AXON’s only product is RVT-101, a drug about to enter Phase 3 clinical trials that hopes to improve dementia patients’ cognition and daily functioning. AXON is basically an empty-shell corporation. It doesn’t have a drachma in revenues and employs only seven people, but some investors believe that our political Food and Drug Administration will approve RVT-101 by early 2018. And the New York “Schlock” Exchange, hungry for new listings — it pitifully lowered its standards a dozen years ago and may soon take new listings priced at $1 — promptly began trading AXON. New clinical-stage biopharmaceutical firms are the rage, and pre-psyched boneshakers toss hundreds of millions of cheap dollars at anything with biotech in its name, hoping for a Golconda.
AXON’s rocketlike rise to a high of $31 with an implied market value of $3 billion was remarkable. RVT-101, originally called SB-742457, had been a GlaxoSmithKline product for years. After 13 disappointing clinical trials, management decided to sell the drug to AXON for $5 million in December 2014. The AXON IPO seven months later turned into an ideal mob scene for a Cecil DeMille epic, as that $5 million magically exploded into a $3 billion valuation in minutes. That is disconcerting and speaks volumes about the collective stupidity of the thousands of suckers whose mingy broksters encouraged them to buy 1,000 shares of AXON at the $28-$31 level in mid-June.
Two medical researchers (one from Pfizer) with whom I recently talked are unenthusiastic about AXON’s RVT-101. And my friend from Pfizer — one of the world’s premier biopharmaceutical companies, which developed and markets Aricept for dementia — made a very good point: Why would GlaxoSmithKline sell RVT-101 if it could be a blockbuster drug? The answer is that Glaxo had tons of millions of dollars invested in RVT-101 and, after 13 failures, the company was glad to rid itself of it.
Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or email@example.com.